On 16 January 2026 the Kingdom of Saudi Arabia issued Regulatory Bylaws governing certain designated Special Economic Zones (SEZs), giving entities in those zones a formal legal, regulatory and tax framework for the first time. The Bylaws were issued pursuant to Cabinet Resolution No. (233), dated 29/3/1444H, and are administered by the Cities and Special Economic Zones Authority in coordination with other competent authorities, including ZATCA.
Key takeaways
- The SEZ Regulatory Bylaws were issued on 16 January 2026 under Cabinet Resolution No. (233) and are administered by the Cities and Special Economic Zones Authority alongside ZATCA.
- Every entity established in an SEZ must take the form of a limited liability company, is deemed to be of Saudi nationality, and must keep its principal place of business inside that zone.
- SEZ companies are subject to corporate income tax on income earned in the zone but are expressly removed from the Zakat regime, even where they are locally or GCC-owned.
- Saudi transfer pricing rules are not switched off inside SEZs; intercompany transactions must still be priced and documented at arm's length.
- Any withholding tax exemption is conditional, not automatic, and ZATCA keeps its audit and verification powers over outbound payments.
What the Bylaws actually change
The Bylaws replace a patchwork of prior arrangements with a defined framework: a mandatory LLC form, Saudi nationality by deeming, and a requirement that the principal place of business physically sits within the zone. The stated purpose is to support investment and economic development, but the framework comes with conditions, licensing requirements and ongoing oversight — so the incentives are best read as earned, not granted automatically.
The most consequential shifts are on the tax side, and they are easiest to see by comparing an SEZ entity with an ordinary Saudi company.
SEZ corporate income tax and Zakat: the headline shift
The Bylaws draw a clear line. A licensed SEZ company pays corporate income tax on the income it earns in the zone, but the provisions of the Zakat Collection Law do not apply to it — so it falls outside Zakat even if it is locally or GCC-owned. That is a structural simplification, because outside the zones a Saudi business can face corporate income tax and/or Zakat depending on its ownership and profit mix.
| Feature | SEZ entity | Non-SEZ entity (rest of KSA) |
|---|---|---|
| Corporate income tax | Applies to income earned in the zone | Up to 20% CIT |
| Zakat | Not subject to Zakat (removed from the regime) | Up to 2.5%, depending on ownership and profit mix |
| Transfer pricing | Applies in full | Applies in full |
| Withholding tax | Possible exemption, but conditional | Applies under normal rules |
For a GCC-owned group used to managing a blended Zakat-and-tax position, removing Zakat and settling on a single corporate income tax charge simplifies the calculation and can lower the overall burden. But "simpler" is not the same as "lower in every case", so the profit mix should be modelled before assuming a saving.
Transfer pricing is not switched off
Transfer pricing is the point most likely to be missed. The Bylaws grant tax incentives, but they do not exempt SEZ entities from Saudi transfer pricing rules. The regulations disapply the Zakat Collection Law for licensed SEZ establishments, subject to the exemptions and incentives of the relevant Cabinet resolution — yet the transfer pricing implications are unchanged.
Tax incentives inside an SEZ do not relax the arm's length standard. Financing, management services, royalties, cost allocations and intercompany sales must all be priced and documented to reflect market conditions.
Tax incentives raise rather than lower the importance of transfer pricing documentation, because an incentivised zone entity is exactly where authorities expect to see profit shifted. Groups placing functions in a zone should refresh their functional and risk analysis and their intercompany policies at the same time.
Withholding tax: an exemption with conditions
The Bylaws indicate that licensed SEZ establishments may benefit from an exemption from withholding tax, subject to the incentives granted for the zone. The important word is "may". The exemption should not be treated as automatic or unconditional — its availability is expected to depend on the nature of the payment, its linkage to licensed activities, and whether the entity satisfies the regulatory requirements. ZATCA also retains audit and verification powers over outbound payments, so an exemption claimed today can still be examined later.
SBC's reading is based on an unofficial translation, because the framework is new; no officially translated document has been released to date, and taxpayers should await further procedural guidance before finalising positions.
What SEZ investors should do next
Three actions follow from the Bylaws. First, confirm the entity form and location conditions — LLC status and principal place of business inside the zone — before committing capital. Second, model the corporate tax position across the whole profit mix rather than assuming the Zakat removal is a saving in isolation. Third, treat withholding tax relief as conditional and keep the documentation that links each outbound payment to a licensed activity. Groups moving real operations into a zone should pair this with an international tax review of customs and VAT touchpoints.
Frequently asked questions
Are SEZ companies in Saudi Arabia subject to Zakat?
No. Under the Regulatory Bylaws issued in January 2026, the Zakat Collection Law does not apply to licensed establishments operating within a Special Economic Zone, even where the company is locally or GCC-owned. Instead, SEZ companies are subject to corporate income tax on the income they earn in the zone.
Do Saudi SEZ companies pay corporate income tax?
Yes. Licensed companies in an SEZ are subject to corporate income tax on income earned within the zone. The trade-off is that they are removed from the Zakat regime, which generally simplifies their tax treatment and can reduce the overall burden compared with a blended Zakat-and-tax position.
Do transfer pricing rules apply in Saudi Special Economic Zones?
Yes. The Bylaws grant tax incentives but do not exempt SEZ entities from Saudi transfer pricing rules. Financing, management services, royalties, cost allocations and intercompany sales must be priced and documented at arm's length, and the zone's tax incentives make robust documentation more important, not less.
Is withholding tax exempt in Saudi SEZs?
Potentially, but not automatically. Licensed SEZ establishments may benefit from a withholding tax exemption depending on the nature of the payment, its linkage to licensed activities and satisfaction of the regulatory conditions. ZATCA retains audit and verification powers over outbound payments.
How SBC Tax Consulting can help
SBC helps investors assess SEZ eligibility, compare in-zone and out-of-zone structures, and model the combined corporate income tax, Zakat, customs and VAT position. Our transfer pricing specialists build the functional analyses, intercompany policies and documentation that SEZ incentives make essential, and we monitor procedural guidance as the framework matures. To review your SEZ position, contact our advisors.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.